Wednesday, 30 December 2015

Would it be a wild, politically motivated jibe to call these the
Osborne/Cameron floods? Of course it is nonsense to suggest that
there would have been no floods over the last five years under a
different government, but it is equally nonsense to deny that
Osborne/Cameron policies have significantly increased the damage and
human misery caused by these floods. Consider the following:

We have known since at least the Pitt review of 2007 that climate
change was going to greatly increase the incidence of record
breaking bursts of rainfall in the UK. Government ministers can
carry on claiming they are unprecedented, but they are not
unexpected.

The Labour government responded by greatly increasing their spending
on flood defences, in the spending review which ended in 2010/11. In
contrast Osborne demanded and obtained sharp cuts in 2011/12 and
beyond. Only the arrival of floods dragged those numbers up in later
years. Ministers can play around with dates as much as they like to
try and tell a different story, but the evidence for those cuts is
there in the data (see this post).
Every news report that allows ministers to claim they did not cut
spending on flood defences is complicit in deception.

The number of specific schemes cut or downsized in areas that were
subsequently flooded becomes longer with every new event, as it was
bound to do: Damian Carrington in the Guardian notes
a £58 million scheme in Leeds cut, extra flood defences in recently
flooded Kendal repeatedly postponed, schemes cut in the Somerset
Levels and Yalding in Kent before the floods of 2013/14, before that
Dawlish and the Thames Valley.

And for what purpose. The argument that spending had to be tight is
utter nonsense. There is absolutely no evidence that if flood
defence spending had been increased rather than cut by 27% in
2011/12 (as it should have been), and that higher spending maintained, the market would have
stopped buying UK government debt. The UK recently sold
oversubscribed 50 year debt at only 2.5% interest: with a 2%
inflation target that is a real cost of only 0.5% a year. By
contrast the National Audit Office in 2014 reported that the
Environment Agency estimated current schemes had a benefit cost
ratio of over 9:1! You have to be slightly mad to cut schemes like
that when they would cost you so little to finance.

David (‘greenest government ever’) Cameron in 2013 appointed
Owen Paterson, a climate sceptic, to be minister in charge of DEFRA,
the ministry responsible for the environment and flood defences. He
cut the number of officials working on a climate change adaptation
programme from 38 to six. A rather sinister aspect to this whole affair is the influence of widespread climate denial on the right might have had on all these bad and costly decisions.

As it became clear how many farming practices can worsen flooding,
the Labour government introduced
regulations on land use with the specific aim of reducing flood
damage. The coalition government scrapped these regulations.

In November this year, as part of Osborne’s spending review, local
authority spending on flood defences was
cut by a third. The Environment Agency has to cut staff as fast as
the flood risk increases, and then through gritted teeth deny this matters. This report
says the Environment Agency had 800 fewer flood risk management
staff in March 2014 than in September 2010.

The independent, government established Committee on Climate Change
has issued repeated warnings to government that spending needed to
be increased, not decreased. They have all been ignored.

As Carrington says, Cameron and Osborne have ignored red flag after
red flag. Cuts that make no sense in economic terms have been made
with costs that probably now run in the order of a billion and
counting, with plenty of human misery attached. Cameron has
calculated that an appearance in wellies at each flood sight will be
enough to assuage public concern. As Steve Richards notes,
after each crisis when no cost is too great, Osborne goes back to
playing the responsible one as he cuts regardless.

After the 2013/14 floods I wondered
if this would be Cameron’s and Osborne’s Katrina. That was a
mistake. For all its faults, and Fox News, the US has a more open
media than the UK, particularly when the BBC is cowed by government
threats. The Guardian, Independent and Mirror will complain (and the
Morning Star will channel
my blog!), but the large majority that never read these papers will
remain ignorant of what has gone on. A chaotic Labour Party will be
unable to coordinate any attack, and fail to effectively voice
justifiable rage, and that will give the BBC an excuse to ignore
them.

But forget austerity
and partisan politics. This is fundamentally about incompetence:
about ignoring repeated warnings for no good reason and causing huge
costs and heartache as a result. Is no one on the right prepared to
call the government to account for its failures on this issue? Will
no one at the BBC confront politicians with what they have done? If
they do not, I fear all we will get are fine words, one-off emergency
cash, and the existing policy of effectively ignoring the threat will
continue once again.

Monday, 28 December 2015

2007 saw very bad flooding in the UK. A report was commissioned from
Michael Pitt (no longer available on a government website, but
available here (pdf), HT @FiDaisyG)which stated:

ES.12 The scale of the problem is, as we know, likely to get worse.
We are not sure whether last summer’s events were a direct result
of climate change, but we do know that events of this kind are
expected to become more frequent. The scientific analysis we have
commissioned as part of this Review (published alongside this Report)
shows that climate change has the potential to cause even more
extreme scenarios than were previously considered possible. The
country must adapt to increasing flood risk.

The Labour government responded to this review by substantially
increasing central government spending on flood prevention. It
reached a peak in 2010/11, the last year of the relevant spending
review. Subsequently the coalition government, as part of its
austerity policy, cut back on spending, going directly against the
spirit of the Pitt review.

It was obvious following 2007 that substantially more money needed to
be spent on flood prevention as a result of climate change, and the
Labour government acted on that knowledge. The Coalition government
ignored it. Suppose that instead of cutting, the coalition government
had allowed spending to increase each year by 2% from that 2010/11
level: a very modest rise given the nature of the risk. That would
have meant that by 2015/16 around £500 million more in 15/16 prices
would have been spent in total, which is about three quarters of the
total amount spent this year. As 2014/15 is acknowledged as a one-off
positive blip, by 2020/21 under Conservative plans we will probably
be looking at missing expenditure near £1 billion. And that is
despite all the flooding that has occurred since 2011, some of the damage from which
must be the result of this missing spending. That is a huge spending
gap created by the Conservatives.

I still find it remarkable that no one has held the government to
account for this huge failure. Flooding is currently costing at least
£1 billion a year. Even if filling that spending gap had prevented only a
small proportion of these current and future costs, it would have
produced a handsome return, as well as avoiding a great deal of
individual heartbreak. Yet the government continues to get away with
talking about unprecedented rainfall, as if no one had thought this
might happen. John Deben, Chairman of the Statutory Committee on
Climate Change, tweets

"Surprising no broadcaster seems to have sought to discuss advice on
flooding and adaptation to climate change given to Government"

The Labour Party too appears to have made no attempt to coordinate a
media attack on the government, in an area where their own record was
exemplary. DEFRA secretary of state at the time that Labour increased
flood defences was Hilary Benn, who is MP for Leeds (one of the areas
affected by flooding) and Ed Miliband was the minister in charge of
energy and climate change. The current DEFRA shadow minister is KerryMcCarthy,
and all I could find from her on flooding was this
and this.

Speaking about the
latest flooding, David Cameron said “We will do everything we can
to help people in this, their hour of need.” It is a shame that no
one seems capable of asking him why he added to these needs, by
ignoring the growing evidence (including the Pitt review) that more
money needed to be spent on flood defences.

Thursday, 24 December 2015

Janan Ganesh of the FT talks
about the unique moral arrogance of the left. They have too often
“impugned the motives of Conservatives”. He says that “the
reality of politics in a rich, modern country is that parties are
squabbling over marginalia”. He is wrong, and should get out more.

For example, take the issue of benefit sanctions. No doubt he might
say that sanctions existed, and indeed the regime was tightened,
during the Labour government. But the reality is that something very
horrible, and morally shameful, is currently going on. The number of
sanctions per claimant remained
below 4% from 2000 to 2010. In 2013 it peaked at above 7%, and in
2014 was between 5% and 6%. Behind these statistics are a wealth of
examples of where sanctions have been applied for minor
infringements, and have ignored excellent reasons like the death of a
spouse, or the long que at the jobcentre. Frances Coppola gives these
and more examples here.

She points out that Department of Work and Pension (DWP) guidance
states “It would be usual for a normal healthy adult to suffer some
deterioration in their health if they were without essential items,
such as food, clothing, heating and accommodation or sufficient money
to buy essential items for a period of two weeks…” Sanctions
often operate for 4 weeks or even longer. It is causing
people to become homeless, and children to go hungry. This is not
“marginalia”.

The current sanctions regime is one of the main causes of the
increased use of food banks in the UK. Yet Ganesh instead likes to
focus on inaccurate use of foodbank data. The DWP says that the
sanctions regime is important in providing incentives to get people
back to work. But is there any evidence that it does this? You would
think that the department would have produced some evidence by now,
although one of the comments
on Frances’s post (and yes, we cannot know it is genuine) suggests
why we have not. Yet this did not deter the department. They put out
on their website (now unsurprisingly withdrawn) quotes and a picture
from ‘Sarah’ who had been sanctioned and as a result had been
encouraged to produce a CV. The only problem
was that Sarah was completely fictitious.

There is widespread talk of jobcentre staff being put under pressure
to sanction. The relevant select committee of MPs has asked for an
inquiry, but this has been refused. Benefit sanctions are just one of
a range
of policymistakes
by this department that is causing real harm to the disadvantaged,
and will continue
to do so. All these problems were quite clear before the election,
but the Prime Minister has kept Iain Duncan Smith in post. George
Osborne has been happy to feed
off the stigmatisation of benefit claimants stoked by the tabloids.

So please, Mr. Ganesh, no more lectures about moral arrogance on the
left. Not, at least, until you have recognised what is actually
happening to many of those who are unfortunate enough to be claiming
benefits administered under this government, and the government’s
apparent indifference to that.

Wednesday, 23 December 2015

“Britain’s supposed economic recovery rests on a personal debt
timebomb.” I’m sure you have read about this many times. If it
often accompanied by the prediction that it will all end in tears at
some point, just like it did last time. Now I do not want to flip to
the other extreme and suggest everything is hunky dory. For example
the UK’s high personal debt levels are in large part because of
very high house prices, and high house prices are a real problem for
many reasons. But I do want to suggest that the evidence for doom and
gloom is not as clearcut as some suggest.

The first, and perhaps most basic, misapprehension is that the
financial crisis was the result of UK defaults. It was not. UK banks
got into difficulties because of their lending overseas. I discuss
this in the context of the so called 2007 boom here.
In particular I note that, as the Bank’s Ben Broadbent pointsout,
in the Great Recession UK “losses on most domestic loans have
actually been unexceptional. Instead, it is UK banks’ substantial
overseas assets that caused much of the damage.” Northern Rock
failed because its business model, which relied on it obtaining funds
from the wholesale market, failed. Of course for UK banks, this
misapprehension that the financial crisis was a result of foolish UK
borrowers rather than their lending behaviour may be rather
convenient.

A second common
trait is to quote numbers for debt in nominal terms. Like cinema box
office receipts, we are always breaking records. It is a classic example of
the kind of bad practice I note here.
This chart, from the Bank of England’s latest inflation report,
shows the ratio of average household debt to income.

It is certainly true that this rose substantially in the years before
the financial crisis. A good deal, but not all, of that is down to
rising UK house prices, which means there are assets behind that
debt. That is a concern, as I have already noted, but as I have also
noted it did not cause the UK financial crisis. We are a long way
from those peak levels, and this chart shows that the household
sector as a whole has not gone on a borrowing binge over the last
year or two.

This has a political dimension. It would be foolish for those on the
left to predict that Osborne’s recovery was bound to fail by
2020. It might, but if I had to put my money on any outcome it wouldbe
more optimistic. The small number who suggested in 2012/13 that UK
recovery would never come with Osborne’s fiscal regime were used to
discredit all those who were against austerity. It would be far
better to focus relentlessly on housing, and how a whole generation
are being denied the possibility of home ownership without helpful
and wealthy parents.

Tuesday, 22 December 2015

Karl Whelan recently tweeted: “Read Cochrane and Woodford on
neo-Fisherism today. Cochrane - clear and thought provoking. Woodford
- unclear and rambling.” I agree about the clarity of John
Cochrane’s writing, both in absolute terms and relative to Michael
Woodford. But on this occasion I think Woodford has a more realistic
approach. So here is my attempt to explain the issue that both are
addressing, and Woodford’s version of learning. The two papers Karl
is referring to can be found here
and here.

The ‘problem’ that both address is that in the standard New
Keynesian model a fixed interest rate policy involves an infinite
number of rational expectations equilibrium paths. Another way of saying the
same thing is that the initial jump in prices is not tied down, but
if you choose to select a starting point the subsequent path would
preserve rational expectations. This multiple equilibrium result
typically means that macroeconomists would regard this monetary
policy regime as problematic, but Cochrane says that there is no
logical reason to reject these paths, and Woodford agrees. However
Woodford argues that this policy is problematic, because if you
choose some particular way of selecting a particular equilibrium (and
Cochrane does suggest one), it will not be learnable in the sense
Woodford describes. (The idea that indeterminate rational
expectations solutions are not learnable is not new, as I note
below.)

What is Woodford’s reflexive approach to learning? For me the most
intuitive way to describe it is that it is very similar to Fair and
Taylor’s method of finding the solution to a dynamic economic model
involving rational expectations, although it may be that this just
reflects my background. (Woodford’s discussion of how his idea
relates to the literature, which opens with this analogy, is very
readable and can be found in section 2.4.) The method starts by
assuming some arbitrary values for expectations variables in the
model, and solves it. This gives a solution to the model conditional
on those arbitrary expectations. Now take that solution, and
recompute using these solution values as expectations. Iterate until
the solution hardly changes, and take that solution as the rational
expectations equilibrium. The logic is that if some set of
expectations (almost) reproduce themselves in this way, they are
(almost) model consistent.

Woodford’s reflexive learning is very similar, although he would
impose some arbitrary, and small, cut off for the number of
iterations (=n). This has various interpretations, but the one I like
is that each period a proportion of the population fully recomputes
their expectations assuming rationality (or iterates a large number
of times), while others stick to their previous expectations. Another
interpretation (which could also have diversity) is to appeal to
‘level k thinking’, which has been observed in experiments. The
reflexive learning idea is based on work by Evans and Ramey, and is
closely related to the E-stability concept developed by Evans and
Honkapohja: Woodford explains why he prefers his approach. Evans and
Honkapohja have also applied their learning technique to this very
issue, with similar results: see George Evans here
for example.

Woodford shows, both analytically and with numerical examples, how
the reflexive equilibrium converges to the rational expectations
equilibrium as the number of iterations n increases if monetary
policy is described by a Taylor rule that obeys the Taylor principle,
but does not for a fixed nominal interest rate policy. To quote:

“It is true that under the assumption of a permanent interest-rate
peg, the only forward-stable PFE are ones that converge
asymptotically to an inflation rate determined by the Fisher equation
and the interest-rate target (and thus, lower by one percentage point
for every one percent reduction in the interest rate). But for most
possible initial conjectures (as starting points for the process of
belief revision proposed above), none of these perfect foresight
equilibria correspond, even approximately, to reflective equilibria —
even to reflective equilibria for some very high degree of reflection
n.”

There is much more in the paper, but on the issue of reflective
equilibrium a natural conjecture (mine not Woodford) is whether all
indeterminate solution paths fail to be a reflexive equilibrium. In
other words is this a rationale for ignoring indeterminate solutions,
or perhaps more appropriately, designing policy to avoid them? Using
the analogy with the Fair-Taylor algorithm, it may depend on the
relationship between iterative stability and dynamic stability. When
there was much more use of iterative methods for model solution I
think there was a literature on this (and it may still be alive), and
I seem to remember both similarities but also differences, but beyond
that I have no idea.

I am not qualified
to address the extent to which Woodford’s idea of a reflexive
equilibrium adds to the learning literature, but it is now beginning
to look as if the result that a fixed interest rate policy is not
stable under learning is robust. As James Bullard says in a recent
presentation (HT ‘acorn’ in comments), this may be “a sort of
“victory” for the learning literature”. Postscript (31/12) See this note from Evans and McGough (in a Mark Thoma post) which I think is consistent with what I say here.

Sunday, 20 December 2015

The Neo-Fisherian doctrine is the idea that a permanent increase in a flat nominal interest rate path will (eventually) raise the inflation rate. It is then suggested that current below target inflation is a consequence of fixing rates at their lower bound, and rates should be raised to increase inflation. David Andolfatto says there are two versions of this doctrine. The first he associates with the work of Stephanie Schmitt-Grohe and Martin Uribe, which I discussed here. He like me is not sold on this interpretation, for I think much the same reason. (There is a closely related discussion of the Neo-Fisherian doctrine by John Cochrane, which I will refer to in a subsequent post on Woodford’s recent idea of reflective equilibrium.) But he favours a different interpretation, based on the Fiscal Theory of the Price Level (FTPL).

Let me first briefly outline my own interpretation of the FTPL. This looks at the possibility of a fiscal regime where there is no attempt to stabilise debt. Government spending and taxes are set independently of the level or sustainability of government debt. The conventional and quite natural response to the possibility of that regime is to say it is unstable. But there is another possibility, which is that monetary policy stabilises debt. Again a natural response would be to say that such a monetary policy regime is bound to be inconsistent with hitting an inflation target in the long run, but that is incorrect.

A simple example is a model without sticky prices where bonds are denominated in nominal terms, and a monetary policy that involves a constant nominal interest rate. A constant nominal interest rate policy is normally thought to be indeterminate because the price level is not pinned down, even though the expected level of inflation is. In the FTPL, the price level is pinned down by the need for the government budget to balance at arbitrary and constant levels for taxes and spending.

The idea still works even with sticky prices and indexed debt, as my EJ paper with Tatiana Kirsanova shows. Here the budget is balanced, after a positive shock to debt say, by a period of above target inflation which reduces real government debt through lower real interest rates. This raises a somewhat pedantic point about David’s post. I’m not sure the path he shows for inflation, with no inflation surprises and no period of lower real rates, would be sufficient to stabilise the government’s budget constraint. Unless I have missed something, a period of higher inflation is required to do this.

However I have a much more serious problem with this FTPL interpretation in the current environment. The belief that people would need to have for the FTPL to be relevant - that the government would not react to higher deficits by reducing government spending or raising taxes - does not seem to be credible, given that austerity is all about them doing exactly this despite being in a recession. As a result, I still find the Neo-Fisherian proposition, with either interpretation, somewhat unrealistic.

Friday, 18 December 2015

In a new paper (here
or here)
based on my talk
at the IMK anniversary in Berlin, I discuss the intermediaries
between academic economists and politicians. Very few politicians
have much knowledge of economics themselves, and so rely on
intermediaries to transmit that knowledge. One important
intermediary, particularly if you are not in government, is the
media, and another is what Paul Krugman called policy entrepreneurs.
In government you have the civil service. In the case of fiscal
policy, central banks are a potential intermediary.

In the paper I look at how needless austerity could represent a
failure in that transmission mechanism. I do not think for one moment
that they are as important a reason as political opportunism by those
on the right that want a smaller state. But I still think they are
important, particularly in helping to explain why so many on the left
feel unable to counter the populist line that the government must
‘tighten its belt’ even in the midst of the deepest recession
since the war.

It is also important
in explaining how opportunist politicians can get away with it. Just
imagine if central banks had used their models to quantify the impact
of austerity, and had made that analysis public. Imagine also if
there had been some authoritative way of conveying the wisdom of the
majority of academic economists, like the National Academy of
Sciences in the US or the Royal Society in the UK. In the UK and US I
think that might have made a difference.

Thursday, 17 December 2015

Tony Yates yesterday commented
on my two recentpieces
on Germany. The second issue he raises, on countercyclical fiscal
policy, is I think quite easy to deal with. He may be right that
there was general unhappiness with how fiscal freedoms had been
abused in the past. But if so, that suggested something very similar
to the SGP (i.e. rules designed to reduce debt policed by Brussels),
but with an additional countercyclical element. That in particular
would have applied pressure on the Irish and Spanish governments
before the recession, pressure that the actual SGP notably failed to
do.

His discussion of OMT
(the ECB acting as a sovereign lender of last resort) suggests OMT is
a bluff. The argument is that if, under the protection of OMT, the
market still refused to buy a government’s debt, the ECB would be
forced to buy it, and because there was the possibility of a
loss for the ECB they would not do so. I think this is unlikely in
practice and is certainly wrong if it is true.

OMT is not extended to any Eurozone country that gets into
difficulties. The ECB has to have the right to say no, leading to
almost certain immediate default. The test is whether the government
is willing and able to stay solvent. The ECB also has to have the
right to withdraw support if conditions change sufficiently to put
its earlier judgement in question. That is a good argument for why
OMT support should come with some form of conditionality, so as to
give the country fair warning that support might be withdrawn.

If the ECB gets that judgement right, then there are no implications
for inflation. Just as with QE, the central bank will have created
money to buy assets which it will at some point sell off again. In
fact the central bank makes profits, because the interest it receives
from the government on that debt will exceed the interest it pays on
reserves. If the ECB gets it wrong there will be costs, but they are
not unlimited: they are simply the amount of debt it bought until it
decided to withdraw support. The benefits that OMT provides surely
outweigh the expected value of those costs, although I agree with
Tony that some in countries that are never likely to require OMT may
take a more narrow view. Even then there are no necessary
implications for inflation, as Eurozone governments should make good
the ECB’s losses.

The most worrying
thing in Tony’s post is his suggestion that limits should be
applied to the amount central banks outside the Eurozone should
provide as a sovereign lender of last resort. Such limits can only do
harm. They are based on a myth that independent central banks can
stop a highly profligate government from raising inflation. It is a
myth because the first thing such a government would do is abolish
those limits. More generally, a government that is so profligate that
future default was inevitable would have no hesitation in abolishing
central bank independence. You cannot stop a government of central
bank nightmares. Such limits are therefore either meaningless, or
could do harm.

Monday, 14 December 2015

The headline in my latest article
for The Independent may seem like a wild exaggeration. But if we are
talking about a crisis that impacted on unemployment in the entire
Eurozone (except Germany) rather than just the periphery, then I think
it is reasonable. It was German policy makers that insisted that the Eurozone
embark on general austerity in response to problems in the Eurozone
periphery. It was the influence of the Bundesbank and others in
Germany that helped the ECB raise interest rates in 2011, and delayed
a QE programme until 2015. Those two things together created a second
Eurozone recession.

Even if we stick to the periphery countries, the crisis outside
Greece would have been a lot more manageable if the ECB’s OMT
programme (which allowed the ECB to act as a sovereign lender of last
resort) had been implemented in 2010 rather than 2012. It is
politicians in Germany that have attempted to declare the OMT
programme illegal. And none of this touches on the impact of Germany
on Greece. I could also add (although it is not in the article) that
if the Eurozone had adopted sensible countercyclical fiscal rules
from 2000 the scale of the periphery crisis would have been reduced,
and Germany had a large role in the deficit focused rules that were
actually adopted.Of course Germany
did not make Greek governments behave in a profligate manner. Of
course Germany did not force Irish banks into reckless lending. Their
own banks may have helped facilitate both, but so did banks in other
core countries like France, and in the UK for that matter. Yet German
influence helped magnify the periphery crisis, and Germany was
central in turning a periphery crisis into an existential event that
impacted on pretty well every Eurozone country, except Germany.

Sunday, 13 December 2015

The BBC Trust is conducting a review on this issue, and has put out a public call for evidence. I thought I might reproduce my own evidence here because it may be of wider interest. I've decided to do this prior to actually submitting it, so that readers can add in comments any examples that go with the theme of what I am saying that would bolster my case. Note that the review is specifically about the use of statistics rather than economics.Draft submission

I would just like to make a few specific points about the use of economic and financial data. This data should be presented in a way that informs the public, rather than in a way that is meaningless to everyone except experts, or worse still in a way that fosters some political position.

Unfortunately this standard is not upheld at present. To take just one example, I have seen a well known BBC financial journalist quote, without qualification, numbers for how much UK government debt is increasing every day, in a manner that is clearly designed to suggest that this is a very serious problem. But numbers like this are meaningless on their own. For example, we could do exactly the same for nominal GDP to give a positive impression about the health of the economy. To the layperson any number would seem large, but it would be a meaningless measure of economic health, particular if all the growth was coming from inflation. Needless to say the view that rising debt in nominal terms represent an urgent problem is a political position, and not one shared by many macroeconomists.

Mistakes like this could be avoided to a large extent by applying some normalisation. To return to the debt example, numbers for debt and deficits should routinely be given as shares of GDP. Economic journalists should also point out that the debt to GDP ratio will not rise if the deficit is positive, but (based on current numbers) only if the deficit as a share of GDP is above something over 3%. An alternative normalisation that would make such figures more meaningful would be to divide them by total household income. Figures for aggregate personal debt should always be normalised with respect to household income, because only then can we really see if rising debt is something we should be concerned about, or just the result of growing incomes

When presenting movements over time, journalists are familiar with the danger of presenting increases in nominal terms, where any growth may just reflect inflation. However in a period like the present with large scale net inward migration, it becomes increasingly important to normalise by the number of people in the economy. The most frequent case where this point is ignored is for GDP growth. Per capita growth is much more relevant for the public, because it is closer to how fast average incomes are growing. Another example is for data on employment: with large inward migration employment will routinely be at record levels. For most purposes some measure of participation is more appropriate.

The best way on television to put data into historical context is to show a chart. This is occasionally done, but it should happen far more often. I remember watching in despair the coverage of the 2013/4 winter floods, where the Prime Minister repeatedly said that the coalition had maintained previous levels of spending, by including spending committed by the previous administration in the numbers he used. One glance at a chart would show that in reality spending had been cut back sharply in 2011 and 2012, yet I never saw the relevant data shown by the BBC, and I could not find it on the BBC’s website. To their credit, recent Newsnight coverage of the recent floods did show this data.

Charts together with normalisation would also put the ‘protection’ given to some departments in recent Budgets and Autumn Statements into context. Health spending is ‘protected’, but if a chart of health spending as a share of GDP is shown, this makes it clear that the planned reduction in spending as a share of GDP coupled with the reductions that have already taken place are unprecedented. Viewers who otherwise may find it difficult to understand why the NHS seems to be in current crisis even though it has been ‘protected’ will immediately understand on seeing this chart. Education spending may be ‘protected’ in real terms, but as the number of pupils is likely to grow real spending per pupil will fall.

Although charts cannot be shown on radio, journalists should have them at their disposal so they can describe their main features, or as ammunition when interviewing politicians. If a chart cannot be shown, historical averages can put figures into context. Consider recent economic growth, using the more relevant and comparable measure of GDP per head. Has growth since 2013 been a real recovery? Showing a chart of growth going back 50 years or so immediately puts such claims into perspective, but failing this merely noting that recent growth is at best close to historic averages suggest that this is no recovery in the normal macroeconomic meaning of that term. (We normally think of a recovery as GDP per head returning to some trend line, whereas recent growth has simply maintained our distance below it.)

This was one example where a failure to put data into context meant that BBC coverage of the election failed to be impartial. Here are two more examples. (A more complete list of what I have called ‘mediamacro myths’ can be found at http://mainlymacro.blogspot.co.uk/2015/04/mediamacro-myths-summing-up.html) The first is the claim, repeated endlessly by Conservatives, that they had to clear up the mess left by Labour profligacy. The claim was absolutely central to their attempt to blame the previous Labour government for austerity. This claim was echoed by the right wing press, and largely believed by much of the electorate.

While it was true that in the last few years of his Chancellorship Gordon Brown did slightly bend the rules to achieve his fiscal targets, there is no way under any conceivable definition that this could be called profligate behaviour. In no conceivable way did it put the economy at risk, or require substantial austerity to correct it. The Conservative claim was therefore false, but I do not recall it ever being challenged on the BBC. Once again simply showing a chart for the debt or deficit relative to GDP over time would have gone a long way to establishing this point.

The second relates to the necessity of reducing the deficit quickly. It was austerity over the first two years of the coalition government that help stall a nascent recovery: OBR analysis suggests GDP growth was reduced by about 1% as a result of fiscal consolidation in both those first two years (figures which I never recall seeing quoted on the BBC, still less used to challenge George Osborne) . The justification given by the government for this was that austerity was needed to restore the ‘trust of the markets’. The BBC appears to have relied on economists working in the financial sector to support this claim. Unfortunately this source is biased, both politically, and in its own self interest: playing up the unpredictability of the markets fosters their self-appointed position as ‘high priests’.

At the very least journalists should have consulted those in the academic community more about this claim. (There is, for example, a widely held view among academics that since the recession there has been an acute shortage of safe assets like government debt.) However some simple use of data would have thrown doubt on the idea that the UK was about to suffer a debt funding crisis. Interest rates on government debt were lower in 2009 and 2010 compared to 2007 or 2008, both in absolute terms and relative to US rates. If you look at rates just before and after the election, they show no impact from the election result: if rates were being driven by prospective deficit levels then you would expect them to fall immediately after the election. By failing to use these simple statistics to challenge the government’s narrative the BBC failed to be impartial.